Welcome to the call. I would like to turn the call over to Pete Lilly, Investor Relations. Please go ahead.

Good morning, and thank you, and welcome, everyone, to Emerson's Second Quarter 2020 Earnings Conference Call. I hope everyone is staying safe and healthy. Today, I am joined by David Farr, Chairman and Chief Executive Officer; Frank Dellaquila, Senior Executive Vice President and Chief Financial Officer; Mike Train, Emerson President; Lal Karsanbhai, Executive President of Automation Solutions; Bob Sharp, Executive President of Commercial and Residential Solutions; and we are also joined by a special guest, President of Professional Tool Business in Europe. Mr. Tim Reeves is who is unfortunately still stuck in the United States. And before we begin, I’ll turn it over to Mr. David Farr for some opening remarks.

Thank you very much, Pete. I want to welcome everyone here. For your information, we are sitting in my conference room, properly spread out and we have been operating, Emerson has been open throughout this whole process. We made the decision as OCE on March 10th when I came back from a conference in New York when I was presenting at J.P. Morgan as always you all showed up. And so, I made the decision with the OCE to stay open. We have the OCE here every day. We are properly spread out. As you guys know this office complex. We also have about 15 other executives throughout this floor. We get together on an ongoing basis to make sure we are making decisions, constantly making decisions. We shut the rest of salary workforce down and send them home and they are working from home. But I was – I felt it was important with this crisis that we were here, arrive and we can make quick decisions and deal with the issues very, very quickly both from a structural standpoint, but also from a competitive standpoint and look at opportunities to keep winning as a company. The opening slide I want to share with you, Honeywell has been involved with making masks that are quite running up in Rhode Island. That’s a slight new plant coming up in Arizona. We work very closely with Honeywell with Darius and I actually talked several times on this issue to make sure they got equipment where we allocated Branson makes welding equipment that makes the masks around the world and testing equipment. And so, this is currently the facility in Rhode Island, which is the picture up with our equipment and the Honeywell mask and this is where CEOs around the world what I call frenemies work very closely together to get things done for the nation, for the world and I just want to make comment to that because this is a situation where Honeywell and I are working together to do something right for America and not necessarily speaking up as something out. So, I want to turn it back over to Pete. But again, here we are sitting here. We are properly spread out. Tim is holding my Raleigh monkey and making sure that it doesn’t get Coronavirus. So with that, Pete it’s all yours.

Thanks, Dave. As usual, I encourage everyone to please follow along the slide presentation, which is available on our website. Moving to Slide 4 with the results of the quarter. Underlying sales growth was well below expectations, down 7% driven by the dramatic drop in global demand as the Covid-19 pandemic quickly spread in March. Trailing three month orders were down 3% also reflected by the decaying demand environment, but indicating some modest backlog build-up. GAAP earnings per share were flat and adjusted earnings per share were up 7% to $0.89, driven primarily by lower stock compensation cost due to a lower stock price and aggressive restructuring actions started in Q3 of last year starting to take effect. Despite lower sales, both platforms executed well on profitability exceeding their adjusted EBIT and adjusted EBITDA peak margin plans for the quarter due to previously initiated and ongoing restructuring actions. Automation Solutions’ underlying sales were down 8% and trailing three month orders were down 1%, also well below initial expectations due to the pandemic demand environment taken shape in March. Commercial and Residential Solutions’ underlying sales and orders were both down 5%. Cash flow performance was solid in the quarter with operating cash flow of $588 million and free cash flow of $477 million, up 10% and 15% respectively. The business returned over $1.1 billion to shareholders including over $800 million in share repurchases and over $300 million in dividends. Lastly, the company continued and built upon its aggressive cost reset plans initiating $40 million of restructuring actions in the quarter. Turning to Slide 5, we’ll cover the P&L. Second quarter gross margin was flat at 42.1%, that’s favorable price costs and cost containment actions offset the declining revenues. SG&A as a percent of sales decreased 130 basis points reflective of the…

Good morning, everybody. We wanted to spend just a few minutes here on liquidity, to spell any concerns anyone has. We are in really good shape. We believe we never take this for granted. We are never complacent but we believe we are in very, very strong position as we enter the downturn here. We have the capacity to fund all of our internal needs and our dividends despite the fact that we – as you just saw, we expect reduced operating cash flow over the next several quarters. We have a modest amount of leverage even in downturn in less than two times debt-to-EBITDA at year end on this plan. 65% of our total debt is term debt and as a result we have very good liquidity in our capital structure and we will begin at Slide 17, just walk you down those points. At March 31, we had $2.6 billion of cash. More than half of that is available on a same day or at most next day notice. So we are in very, very good shape if there should be a market disruption and we also have a $3.5 billion revolver, which is not drawn and it’s committed through April of 2023. We also have the right to extend it under the current terms and we are in all financial covenants in the revolver. So, all in all, as we look at our ability to fund our needs short-term and longer term, we feel like we are in very good shape. If you please turn to Slide 18, when we begin to – when we began to see this coming in mid-February, we started to extend maturities in the CP program. At first, it was difficult, because the market wants somewhat royal. It improved when the Fed…

Thank you. I ask Frank to talk to shareholders this morning about this issue. Frank and his team, I have to give tremendous kudos for accomplishing what they’ve done. They came to us in early February long, and basically say and we need to start take an action. Frank also worked very closely with the finance committee, the Chairman and several of the members of the finance committee who are very knowledgeable of what’s going on in the marketplace and they instructed us very well of the time. We also have several executives, but we had a Executive Board Meeting that discussed this issue and other actions. And then we also – last week we pulled up our Board Meeting and had a four hourBoard Meetingwith the Board and then, yesterday we had the audit Committee Meeting. So we are trying to communicate to our Board to get their inputs. But most importantly, it was our look at this, the liquidity, the financial structure, the ability to finance this company and times like this are very, very crucial. And Frank and his team has done an outstanding job with that. Before Mike has a comment about the battles he has been fighting around the world, I want to remind people on start 2020 for the new sell-side or investors out there. Emerson had a very global retail strategy since back – since the day I started running the company as a CEO back in 2000. And we’ve had this strategy when we looked the world on an Americas, Europe and Asia Pacific, we go from manufacturing, engineering, supply chain, customer sales and support service and we look at ways – I call it the tick back chart. We look at ways that we could serve the global marketplaces out of…

to: Let’s go to chart 21. We’d obviously recall last time we were together it was our Investor Meeting on February 13. Our China operations were just getting restarted after a government mandate we closed for two weeks. And then the days were a bit rugged as suppliers took some time to get clear to restart and there was quite a challenge on intra-province and international logistics. This has significantly improved in the past month as we’ve seen our China business starting to come back in a stronger way and I know Lal and Bob will provide some insights on that in a moment. Now as the Coronavirus again make its way around the world, we saw challenges to our operational capability imposed by governments as they implemented various forms of stay home, shelter in place and lockdown orders. Emerson provides critical infrastructure products and essential services and with great effort we’ve been able to gain government recognition and designation. China led to the South Korea, Italy impacts, which then moved along to France and Russia, Middle East and the Americas. It’s been a highly dynamic environment and I must give our global Emerson team who are likely listening into today’s call, a big thank you for their collective efforts in working with customers, suppliers, and governments to keep these critical industries running, running when it’s needed most. In the last weeks of March and early April, we saw a multitude of states in U.S. and multiple countries around the world implement these orders which tens of thousands of our own employees who have been to work from home mode and it’s been amazing watch the Emerson teams deal with a sudden reality and come through in every aspect. Not great timing from the end of a quarter perspective but…

Well, Mike, I want to thank you very much for this issue. This is not easy to the 24 hours a day, seven days a week, day in and day out over the weekend you and I were talking a lot. You are talking to various people, dealing with political leaders at all levels to make sure they understand the importance of this and then working very close with hands-in-hands with operation. I also want to make a call out to Steve Pelch and the organization relative to the work they’ve done on safety and all the task force that we’ve rolled out with how Bob and Lal and the other team around the world knowing what’s going on every day. We get reports around the world of what’s happening with employees, if any of them contracted the Coronavirus, anyone has become tested positive, who is being isolated. Steve has organized this right now. He is now in a process working with the HR teams and the global manufacturing teams to get the – how do we come back out of this on a measured way and a safe way. How do we come back out of this operation and get everyone back to work and back into the buildings that we have from a salary standpoint and support our global manufacturing and technology. But Mike in this area here, this is something that we’ve never had realized before will we had to work governments at the highest level. This iswhere having those relationships that all of us have, everybody at this level and also retired executives that Emerson have that really may come home and help us in times like this. But for the people out there before I go into and I want to make out a comment,…

Yes. Thank you, David, and good morning. I’d like to begin by acknowledging the global automation solutions team for a tremendous close to Q2, particularly as we faced rapidly deteriorating market conditions. This team has momentum in executing our peak margin plan and is focused on the additional challenges we now face. So turning to chart 28. This is how the plan works from an orders and sales perspective in what is a significant demand-driven cycle. Orders were down eight tenths of a point in Q2 versus a 2.3% plan and weakening trough in Q3 and stay negative for five consecutive quarters as we have modeled the next four quarters. From a global perspective, these are 2015, 2016 type of numbers. However in 2015 and 2016, it took us essentially four quarters to unwind whereas in this cycle it really happened in a quarter. North America is very challenged. I’ll give you a little bit of color on the world areas now. North America is very challenged. Obviously, the oil prices and what’s happening in the marketplace is unsettling and it presents a huge challenge to the upstream business. We will see production quotas imposed as the Texas Oil Commission and others meet and vote later this morning. Rig count is down 35% in Western Texas in the last 30 days and our RFUs in the upstream business is down about 25%. There are only 35 operating rigs left in Alberta and we believe production will be curtailed by at least 20% in North America. Downstream, refiners are continuing production as well. Some are shutting down units and other smaller refiners are shutting down completely. This is partially offset by strength in medical and life sciences as Pete pointed out. We won a major biopharm job which we will revoke…

Thanks, Lal. Like Lal did, I want to start by recognizing the team out there. Q2 ended very differently than what we thought starting with the China downturn in February coming out of – a delayed coming out of Chinese New Year and then going into March as we’ll talk about, despite that we had a very strong quarter gross profit drove the nine tenths of adjusted EBITDA improvement. We held SG&A in line with sales even though again that sales drop by about 5% just in the last weeks and that was certainly a strong effort. As essential business, we keep running. Around 84% of the Commercial Residential Solutions employees are still going to work every day at the site. And that’s what we need to do to produce and ship our product and I’d certainly want to extend a special thanks to that groups and we’ve taken many measures to make sure they are safe following the government and local health guidelines, as well as doing additional actions as well. For the chart here, what I am showing, the sales and orders for our commercial residential largely go in line with each other. We are very much a book to ship business. But what I am showing here is our sales outlook for this year into next year and then I am going to use the financial prices as a reference, because there is not really any direct reference to what’s happening right now. But the closest thing I think we see is probably the financial crisis. So you can see going in last quarters have been kind of flattish if you will down a bit. You’d expected it to be very similar to the rest of 2020 even a month or two ago and then things started…

Thanks, Bob. I want to share a few examples from an Automation Solutions perspective, as well and four specific examples of the efforts our teams are making to support the Covid-19 crisis response. Starting in drug development, I’ve already mentioned a major pharmaceutical bio firm announced a significant expansion recently. This is in response to a positive response of one of their drugs in Covid-19 treatment. I can’t mention the name of the firm or the drug as we are in an NDA. However this contract is north of $20 million and will be book and ship this fiscal year. In the testing realm, our Coriolis meters are being used for the precise filling of reagents in testing equipment. This will move over to medical PP&E. We have been awarded orders from Honeywell over the past five weeks for ultrasonic welders to be used in the manufacturing of medical masks. And lastly, in patient therapy, we have received nearly $20 million of orders for valves, manifolds to be used in oxygen therapy machines and sanitary regulator solutions for ventilator applications. So very broad set of offerings that support the response that’s occurring around the world. Thank you.

Thank you. Thank you, very much, Lal and thanks everybody again. We made the decision as we listen to our investors in the calls, in the sell-side analysts and also the buy side investors. So we felt that we needed to go little bit above and beyond normal in our communication. Don’t expect this type of detail all the time. A lot of work goes into this. I just want you make sure. But I think it’s important that our investors understand what we are living in day in and day out. And again, I want to thank everybody both in this room, the entire OCE, the 15, 20 people that put up to me for the last 45 days and also the people around the world as both Bob and Lal and Mike and Frank have communicated. It takes a team effort and we’ve divided and conquered and formed taskforce and worked this on a day-to-day, phase-to-phase basis. And I want to make sure that everyone is recognized for that. I am doing a video again this afternoon. 2 O’clock two videos, one for the employees and then also one for our website to thank everybody. I also want to make one special emphasis on this. People know me quite well. In 2015, 2016, 2017, we went through a major repositioning effort and I made a very strong statement that we would not cut our dividend. We would not break our dividend history. I want to make sure people understand that. I am still the CEO. I am not dead though people have tried to kill me. I am still quite strongly in charge and as long as I am here, our dividend will not be cut and we will maintain our dividend payments in history. We have the financial flexibility and capability to do that going forward. We also are looking clearly one of the things I want to make comment on is acquisition. We clearly see some opportunities that will start emerging and we want to make sure, we are strong, financially set and what the work that Frank is doing and the work everyone is doing right now gives us that flexibility to pickup unique opportunities like we did D&C many years ago. But with that, I want to thank everybody in the situation room here. And I want to thank everybody around the world that has listened to us for Emerson and I am going to open the line and take Q&A. And we’ll start. So off the back to the announcer. Since you wouldn’t do a live – Saturday night live, this is live from St. Louis and the first question is coming from I guess, Mike Halloran. So let's open the lines, so Mike can ask the question.

Yes. First question comes from Mike Halloran from Baird. Please go ahead.

Hey. Good morning everyone and thanks.

Thank you, Mike. Good morning to you.

So, first question, just some historical context on how you are looking at the oil and gas cycle here. Obviously, you've been through a few of these days. And certainly appreciate the slide that Lal put together and the amount of KOB 3 that’s now in the portfolio. But how do you think about puts and takes structural concerns as you move forward gas versus liquid and how quickly you think your customers can start responding by putting more capital dollars and OpEx dollars back into the market?

Yes. So, Michael to give you some context, I’ve been around a quite long time. I ran the process business back in 1996, 1997 when we had the financial crisis of Asia and the price of oil went below $10, almost went to zero. I think you are exactly right. We are going to see – I’ll let Lal answer couple of things. We will see a structural change. I think we’ll see an acceleration over time from liquid to gas. I think you are going to see a structural change in the power industry, a topic what’s going to be used in the power industry generate energy and electricity. I think they’ll take their time with this situation. I think some of our gas projects are still on the table. I’ll let Lal talk about Golden Pass plus the one going on in the Middle East right now. But the first thing right now, Mike, is they are going to hunker down and protect the cash. They are going to try and maintain the current liquid production, the revenue. So therefore they are going to have spend KOB 3 type of dollars and a little bit of KOB 2 dollars. I think this been transitioned more out there in the 2023, 2024 and 2025 time period. Based on my historical knowledge of this, and I appreciate that. By the way, I am assuming Covid can’t go over the virus. You get me sick. I’d be very upset with you, Mike, especially since you're a Brewer fan, Milwaukee Brewer fan. So Lal, anything you want to add to that?

Yes. Thanks, David. What we’ve seen in recent announcements by the majors cutting CapEx down 22% versus 2019 those kinds of ranges. It is important to note that here in North America it’s a heavily concentrated space. Approximately 50 players generate 80% of the oil production in the United States. The other 20% is done by thousands of players. I think that 80 players will be – the 50 players, excuse me, will be very disciplined. As we go through this, the thousands, many of them will be in trouble as we go through it. So typically, when I think about the two segments, the downstream refining and the upstream oil and gas, I believe they have different economic cycles. However, in this, both are grappling with that fundamental lack of demand. Mike, as you pointed out, refiners are facing difficult decisions. They are reducing utilization rates as I pointed out. Some of the idling units. And some are trying to figure out how do adjust maintenance and turnaround intervals to manage this tough environment. For us, upstream is significantly more weighted to CapEx historically and refining has been more weighted to OpEx. That’s one aspect where we see some difference. The other aspect is that we believe that the reining segment will rebound a little quicker as demand normalizes. However, oil – the oil production is more structurally impacted, I believe and that will be significantly more challenging because of this oversupply element that we have. That’s how we see it right now in the two. But I think structurally upstream oil production will be more challenging cycle here.

One of the things we are doing, Mike, because you are exactly right. There is going to be some structural changes. We are starting – we are evaluating the organization too and we are putting investments and how we are going. As you well know, we can adjust our people, but we are working very quickly because clearly there is not going to be any major projects for a while in the liquids side. There will be more in the gas side and obviously we are going to redirect our people and support the aftermarket business. So, a lot of adjusting going on by the world area people. Jamie, out in Asia Pacific, Vidya in the Middle East, we have obviously Roel in Europe, our leaders there are all adjusting because of the same issues that you bring up and it’s going to be very fluid and live I think for two or three years.

And David, to your point around gas, you are absolutely right. Golden Pass continues to move forward. That’s said LNG jobs – Saudi’s Marjan project is the offshore gas production continues to move forward and we continue to book the awards there. So I think they're looking long-term gas opportunity still as a dynamic they want to continue to fund.

Mike one more question. Sorry please.

Yes. So that's actually a good segue. Then how do you think about the structural changes that we are seeing on that piece and what that means for the AS segment over time? And Hybrid discrete, some of these medical life science applications seem to doing very well in certainly better tale as we look forward, particularly as we basically step back and some more regionalization come on that side. How quickly can you move the portfolio? What does it look like, obviously you don’t stop supporting the KOB 3 piece and you still have a lot of breadth and depth there. But how quickly can you move and what you think about inorganically versus organically?

Yes, I think that we are – one of the things that Lal and his team are really – we are obviously looking at our internal investments. I’ll answer the first and then Lal answer those two. But we are obviously changing our investments towards serving the more discrete marketplace. The other marketplace is not the liquid side, because I think the gas investments will continue to come back. The aftermarket gas is very, very strong and then it will be a liquid but it will be changed as you are saying. So you are going to see that we continue to invest at higher levels around the areas that are in the hybrid space, the discrete space of the space both from an acquisition standpoint and also this internal development. We have a lot of projects underway right now working clearly within the discrete space, within the systems space that move outside the oil in that marketplace. We are also looking potentially some acquisitions, can we shake out some acquisition that are little more software based along those lines. So, Mike, I think you are right and obviously, as we’ve seen in every other structured time like this, our liquid business will be less and our other business will be higher. So that percentage will continue to drop. So if you think about the revenues and you think about the business that we have today, and it’s going to continue to shipped away from the liquid side, we are not going to walk away from these important customers that we support in the oil and gas area. These are very important customers. The industry is dependent on our technologies. But you are right, we will reallocate some of the new innovation around the other areas and our portfolio continue that mixing away from the oil and gas. So anything else you want to add to Lal?

Just two things, David. We made significant efforts both organically and inorganically in developing our portfolio around the discrete space, both with acquisitions in Europe and internal investments in that business around our core ASCO technology. And there is a significantly longer runway to continue to drive that. The two other areas, David that I am particularly focused on from a diversification perspective are in the Hybrid segment, life science, particularly meaning as we touched on Mike, in the power segment. I think there are opportunities to expand our power market beyond our traditional generation control system into other areas.

And I think that – will you Mike, also like to add on up in Minneapolis, right now they are working on a lot of sensors for the hybrid life sciences, food and beverage space which is important area. So, the next question, come on.

Next question comes from Nicole DeBlase from Deutsche Bank. Please go ahead.

Yes. Thanks. Good morning Dave.

Good morning, Nicole.

So, I just wanted to ask about margins in the second half of the year. It looks like you guys are embedding decremental is getting about worst in the third quarter despite the fact that I would suspect restructuring payback is stepping up. So if you could speak to decremental margins as well as the expectation for restructuring payback?

Yes. I think the big issue right now, Nicole, is in the second quarter why our detrimental margin was so much better is obviously we had a lot undergone in the first quarter and then the drop-off in the sales be it significant, but not the same level we are talking about in the third quarter. So, right now, the acceleration and the decline of our sales are overwhelming basic to the restructuring we’ve done in the first half and the incremental restructuring we have going on at this point of time. We are still looking at 12 months left on the total pipe. We are also looking at some longer term ones that we are doing relative to our international markets. So we can sort of set ourselves up for a better 2021 and 2022. But the third quarter in particular is really – is because the drop off you see in those sales, I think when we drop-off $1 billion something in the third quarter sales, $700 million. It’s just overwhelmed everything we’ve done at this point of time. So we’ve been a little bit more cautious on that. But we are still looking at a very good payback of 12 months and from that standpoint. Very focused on that, but I just don’t see us overwhelming that drop-off in sales has hit us so hard in April, May and June.

Okay, fair. That makes sense. And then, just piggybacking on to that question, is there any big difference in the margin expectation by segment or were both phased similar decremental as in the second half just thinking about the fact that most of the restructuring spend has been focused on AS?

Bob, why don't you answer first? What's your decremental second half right now? You are going to be close to 30.

Yes, we are going to deleverage around 30% order of magnitude that’s where sales down and went to the teens. So it’s a bit of a sales difference in the second half between the two platforms. But as Dave mentioned that magnitude of sales decline, even with the very strong SG&A reduction versus last year, and certainly many activities in the plants. The deleverage of volume, as well as again the Covid-19, which is very disruptive to the plants right now is going to be very challenging.

From a productivity. I think the other thing I want to add, Bob, you are still trying to target some EBITDA margin improvement for the whole year, even with the down sales we are looking at. So that’s still the case.

Adjusted EBITDA in total for the whole year we are looking to hold versus last year. But we are going to be hurt at this point. Yes, there is going to be very strong for volume decline, but it’s going to be difficult at this point to be up.

And the big issue and I’ll let Lal answer to, Nicole, the big issue right now, the plant, some plants will operate for a day, two days and then get shutdown as we have to clean. And that productivity impact is very, very hard to overcome in which safety within our facilities is very, very important. It’s frustrating. You have a situation often you have to shut down, then you got your people back up. So it’s another hand tied behind your back. But overall I think with that all that situation is doing pretty well. So, Lal, anything you want to add?

Yes. Thanks David. Hi, Nicole. The third quarter is clearly our most challenging quarter within leverage rates in the 44% range for us. That’s driven by predominantly two factors. One being the North America impact which is most significant in the third quarter accelerates from March into Q3 and the book to ship business’ impact. For the short cycle businesses in our instrumentation and KOB 3 in final control being impacted. Those are higher margin businesses than some of the longer cycle businesses that we do have. Things do get better for us sequentially into Q4 from a deleverage perspective and we fall back into the 2020 on a pure EBIT basis, which is more normalized. But the third we think a significant hit.

Got it. Thanks guys.

Thank you very much Nicole. See you soon.

The next question comes from Andrew Obin from Bank of America. Please go ahead.

Yes. Good morning.

Good afternoon or good morning, Andrew. I guess, it is morning.

Yes.

I just use this morning stuff. Don’t get used for either. Go ahead.

Just some the questions. Looking at the comparison you guys making with 2008, 2009 and I understand the bottoms up back that the company is better. But it seems that the GDP forecasts for 2020 are going to be weaker than what we even saw in the great financial crisis. Yes, your revenue performance seems to be better than in the financial crisis. Is that all driven by just changes in the portfolio or are there other assumptions from a macro perspective embedded there as well?

The number one issue, Andrew, is we went into the financial crisis wanting hot, strong. We are very strong. We are growing double-digits. So that was the biggest – so we are in a growing curve and then we got hit and we dropped hard of that hit. As you well know we were structured this year for a basically a flat year. We had a couple – last year it’s a bit bottom, this is flat to slightly down. Lal was way up what he thought it was originally. So we are going into the cycle differently and the second thing is we are differently structured from a mix of the business since the last cycle. But the big issue is when we went to that one, we are growing very strongly and then the bottom fell out. This one we were ready for it. The bottom had already started collapse last year. That’s the biggest difference, Andrew.

And just a second question. In terms of restructuring, you are talking about spending more money, but can you just talk in terms of logistically what is that you are doing in 2020 now that a couple of months ago you didn’t think you would have to or you couldn’t do it. Are there opportunities to move fast or is it just you are being more aggressive on footprint and if you just us more detail as to specifically what if you could share that publicly. Thank you.

Yes. So, there is two avenues here. One we are – what we are trying to do is accelerate the programs sort of the fixed cost programs, the facility programs that we had built more into 2021. We are trying to accelerate those into the second half of 2020. So we can get those done sooner because when the spike does come back, we want to have those new facilities up and running at lower cost structure. Secondly, we are being a little bit more aggressive on some of these consolidations and how we do them and how fast we get them done from that perspective. And the third thing is, as I said earlier, both the corporate and the two platforms, we are looking at the structural of the overall company and what layers we can take out and what layers we don’t necessarily need more as we learn how to run the company in a different world which we are right now. So those are things we are doing and we are just looking at everything very carefully and sort of – if we don’t need it, we are not going to do it. And that’s from that perspective. So that’s what’s going on a lot different view of that as we go through this pandemic war. I think, Lal you want to add?

Yes. Thanks, David. Obviously, on the facility rationalization, it is dependent on us building the best cost sites. So that we can execute some of those plans. They are underway, that’s obviously building plants this time accelerating as best we can. So to David’s point, a lot of what we’ve identified Andrew incrementally has been purely around volume related headcount decisions on what we do and don’t do and then identifying further delayering opportunities across the businesses. Those are the – those two categories. As we talked about it New York, Andrew the quicker the payback on restructuring and quick as to execute and that’s what we leaning on very hard here in 2020 as we accelerate this second half restructuring.

Bob, do you want to add?

Well, I’d just say that, our peak plan did not have things like wage freezes and cuts. Certainly, discretionary, I think most everybody else is doing the same thing is practically non-existence. And frankly, as we are just going into the organization at a level, part of it’s volume-related but a lot of the SG&A isn’t necessarily easy to do with volume. So we are making some tough choices right now and positions that we hope to at least be able to work have without for at least a year or so to get the payback on it. But some of this stuff when we do get volume we’ll certainly come back and it’s – I wouldn’t say it’s really part of the peak plan. It’s part of dealing with just a very dramatic sales cycle we hope in the last two ones. But again, the operational side, the plants that’s all going. There is not a whole lot more we can do that will affect the second half of this year. Even in the manufacturing salary, rents and costs, we are not returning over at this down right now and trying to deal with a pretty dramatic volume slide here quickly. Does that answers?

Yes. Just a question, have you essentially your definition of what low-cost facilities are in this environment given this fracturing of global supply chains that people talked about?

We use the word best cost and the answer is no. We always look at evaluation relative to logistics. If you think about our regional strategy, we think about logistics, supply chain. I think there fundamentally will be some changes as people look at rebalancing that matrix site that we use and we did a rebalancing about five or six years or seven years ago. We will take a look at that as we go forward here. But from our perspective, we are – we tweak that matrix on a constant basis. We’ll tweak it again at the end of 2020. But right now the definition of best cost has not changed, no.

Really appreciate it. Thanks a lot.

Next question comes from Julian Mitchell from Barclays. Please go ahead,

Hi, good morning, and thanks for giving the details. And morning. Maybe just a first question, David, looking at Slide 24, and you got that scenario there is a big dip in fiscal Q3 and then staggering back towards a sort of flattish line a year out. Maybe just help us understand within each of the two main segments which end-markets do you think will lead that recovery? And which ones might be lag on, understand that maybe upstream CapEx is definitely a laggard that Lal had called out. But maybe any other color across the two platforms of the slope of end-market trajectory?

Yes. I think if you – I’ll comment and I’ll let both these guys comment on the specific businesses and what will be different. And clearly the liquid side of Lal’s business is going to be very slow. I think you are going to see starting in the first half of next year some companies look at bringing some facilities back in the United States. So they’ll be spending around pharmaceutical, and medical, they’ll be spending around some of the chemical side and the materials that go into that space. I think you are going to see – the only laggard we see probably early on will be the liquid side on the new contract – in the new business. Historically, that would lag with this type of shock. I would also probably be cautious about the gas. I think the gas capital investments will probably be a little bit slow recovering back. But the rest of the 80% of the business that we look at, I think will start bouncing back pretty quickly as they go through their own matrix and see where they are making stuff and how they rebalance that. But the power industry, I think will continue to spend as it is right now. If I look at the food and beverage, I look at the chemical, all these guys are reevaluating those – their spending. So, I think those are – they are going to come back. Liquids and the gas side that would worry about which is about 20% of the total business. Anything else you want to add to that?

David, just very quickly. Obviously in the 60% KOB 3 business, Julian, that’s a lot of day-to-day small orders. Essentially, what that 60% define is what is required from an automation perspective to keep the plants running. Be it a pharmaceutical plant, a refinery or coal powered fired station. So, it’s that that we are focused on. I agree with David as this comes back it will be predominantly on that – not be in that production, but that will lag. It will be more downstream as we hear. But we are currently already scheduling SPOs shutdown turnaround activity into the fall season. That’s across the broad scale of process industries and power. That we’ll see accelerate and return very quickly as people allow background sites. And we should see the benefit of that.

But you are going to see a lot of the – as the White House, that I am sure every governments around the world look at as all the areas that went into the healthcare, the medical, the type of chemicals, whatever they need, the pharmaceutical, I guarantee they are going to look at how do you – around the world, not just in the U.S. but also Europe and Asia they are going to look at. Okay, where do we need to make those investments and that’s what’s help drive a company like Emerson back in the early 2021 time period. Bob anything you want, as you see a change coming back?

Yes, certainly for us, certainly a key leading end was obviously China and that’s also we anticipate being a key as far as coming out of it as they work on stimulating the economy. Construction, both in terms of real activity, if you will, but also especially the channel just getting very cautious about carrying inventory snaps very quickly on us. And depending on the sell-through picture that could come out – that can come back quickly as well. Cold chain right now, again the restaurant industry is largely frozen in the United States or on hiatus. Even supermarkets which were all realizing a critical infrastructure are very limiting as far as really in the sites. So they are very careful about doing any project activity right now. And then again, certainly, if the general customer both individuals as well as companies freezing right now with uncertainty about what’s going to happen. And then, again coming out to China, and certainly again for us the summer cycle in the U.S. with air conditioning is going to be quite important and that we always watch as the spring development as the heat develops that’s going to be a key factor. And it might be a more of a replacement market here than a…

Yes, they certainly talked about replacement, but about 85% of our business is already on to that replacement anyway. So certainly the housing, new housing will have some factor and whether people do require – repair their systems, replacement matters of that too, although margins on the repair side, the compressors are quite good. So, there is certainly some mixed out if it gets down into component repairs. Thank you. Julian, anything else?

Just a quick one. I mean, I know that you always looked sort of further out into the medium-term. So, maybe whenever we come out of this downturn, would you expect anything different about the incremental margins whenever we come out of this slump versus, say, your experience in 2017 or 2010 and 2011?

Well, I mean, from the standpoint of – we are not backing off our peak margin plans. So, obviously as we come out of the incremental margins should be better in the near term because we are taking fundamental structural changes to the company and we are evaluating all the touch points between the two businesses and the corporate entity. So I would say, structural cost will be lower as we come out of this and that will be a good thing and the key is for you is for the next CEO is to make sure that he or she does not allow those structural cost to come back in. But I would say that, as we try out of this thing incremental margins could be better for us.

Great. Thank you.

Thank you, Julian. Next.

Next question comes from Andy Kaplowitz from Citigroup. Please go ahead.

Hey, good morning guys. Dave thanks for all the color here.

Good morning, Andrew. How are you doing my friend? Where are you hiding these days? Are you hiding in some place? Are you bunkered?

Hiding in Jersey. Hiding in Jersey. Very exciting place to hide. But…

Very good place.

Exactly. By the way, let me ask you about China, just in the context of obviously down 20% in AS in Q2 and 30% in CNRS. So how much did you use China a roadmap for Covid-related impacts across the rest of the company where you are thinking about your guidance? Because you don’t seem to be guiding to that kind of impact for the rest of the world in the second half. Is that mostly because of the expected China recovery, or are there any other geographies that are hanging in there better than China? And then can you give us your take on the shape of China’s recovery? I know you gave us lot of color. Do you think it’s ultimately U, L? What do you think there, Dave?

China recovery is going to be a more of a V shape. And you could just quickly say I think it’s going to be sharper for a while, a little bit more flattened for Bob and the reason for it is, it allows businesses, I mean from a nationalistic approach, China is investing in things that will help them as a country, be it the medical area, be it the power area, be it the other different energy areas, given the fact that building tank farms to buy $10 price of oil. I mean, China, for a while business is going to stack much faster. Now, I don’t think the rest of the world is just – I’ll talk to Lal’s business first. I don’t think the rest of this world will snap this way. China has a little bit different agenda from the standpoint how they control the economy. I think the other economies will have a slower come back from the standpoint of how they open up. We just look at our measured opening that we are going to have inside the United States. I see the same thing happening in the middle of Asia, in the Middle East, Asia South and Middle East and also in Europe. So, I – what we are mapped out here, Andrew is a different a slower recovery within the markets outside of China. I also see that I look at Latin America. I think Latin America is going to struggle on the political leadership and also the financial wherewithal is not that good. On Bob’s business, clearly, historically, Bob’s business, he is coming back quite strongly in Asia, or China and Asia. Not snapping as Lal’s because money is being more allocated to where they want to put the money. But still it’s going to be a pretty strong recovery. And I don’t – we don’t see that type of recovery in the other markets. So we see more of a flattened slow recovery. Now the one thing that Bob has historically is he get snapped, as he has a chart he shows historically, maybe by the third or fourth quarter of next year, he could see things accelerate and it goes back to the distribution channel which we are liquidating because the financial wherewithal of that channel and then also may see some strengthening that can stack. He actually historically has a stronger snap. And so, we’ve not factored in any snaps other than in China, because it’s just – I don’t see the other markets behaving like China at this point in time Andrew.

China is definitely been very proactive about getting businesses, getting the back going which is not necessarily the case you see in other countries and both in terms of getting plants operational, getting people back to work and also then on a stimulus side of injecting things with programs. So, I think you are just seeing a lot more organized collective effort, if you will, to get the economy back running and then we are going to see in the number of countries right now?

Bob, do you want to add anything?

Yes, just very quickly. Obviously, China doesn’t have the production elements of our marketplace. Europe is the other area that has very little production left than – has been depressed for a long time and we are seeing Europe being more resilient than the Americas for example, as well. So those will be two nuances on that.

Thanks. That’s helpful guys. And then, Dave, there has been a lot of talk. I mean, you mention about reassuring and how that might impact taking multi-national companies. You did talk about your strong local-for-local strategy. So maybe talk about how your supply chain has been impacted, little more color there and how you might benefit us? In fact, we do see more emphasis on localization of supply chain. And then conversely, how much concern do you have about being a big industrial player in China if we do have more call for nationalism over the next couple of years?

Well, nationalism, it has been calling on now. It started back about five or six years ago. But nothing new, it’s obviously just escalated a little bit higher that has been going on for some time. I totally believe based on what we are seeing in our customer base in both the chemical industry, what we see in obviously the food and beverage, the hybrid, the medical industry. We are seeing a push to our rebalance some of these supply chains and also where they make stuff. The fact that Honeywell is opening a mask – a plant in Rhode Island, a mask plant in the Arizona, the fact that we are seeing some first vaccine production that we are working on right now and going after to be in the United States. I think the legislation has to be changed to protect the medical and pharmaceutical industry and the vaccine industry. But I think you are going to see that. I think clearly, the negative side of that will be companies like Emerson and the multinationals that we serve the global industries, we are going to have to work that issue. But it’s not going just with the U.S. I think Western Europe will be the same way, Andrew. I think you are going to see Western Europe, be it the French, the German, the Italians, the Spanish, the Belgians, they are going to look at what happened and what they could depend on, be it the Asians or be it an American and they are going to say okay, we need to redo some stuff here. So I think this is going to happen globally over the next two or three years and I think the good solid global industrial companies which you guys all know about, many of you follow I think will benefit from this. I think the guys are – the companies are still going through massive changes are going to struggle. There is going to be pluses and minuses, in the end I think I put a plus on our side. I do have a couple negatives as you point out and we’ll have to manage those accordingly.

Thanks, Dave. Stay well.

You too. All the best to you, Andrew. Especially in New Jersey. I think I like my hand better in St. Louis.

I hear you there.

Okay. Next.

Next call comes from Josh Pokrzywinski from Morgan Stanley. Please go ahead.

Good try. Good try. That’s damn close. Good try. You want to pronounce your last name for this guy?

Yes, I hope it was, eight out of twelve letters – Dave. So…

Eight out of ten. Oh, that’s pretty good. I loved it. Josh, you did got the humor award this morning. Okay, Josh.

I appreciate it. We talked a lot about the supply chain. Anything in your own supply chain, your own sourcing that you are looking at saying, gosh, this is gotten too long and much we manufacture locally. We are having to cross a few too much – few too many borders to get components or other kind of sub-assembly, looking less at your customers and kind of more yourself as the purchaser?

Yes, the answer is yes. And so, what we are going through right now is the first wave we obviously hit was the China wave. And as we looked at the China impact at the end of January and early February, we are looking obviously, what's happening towards right now as we look at the India, Malaysia, Mexico, U.S. what we have is a very good enterprise risk strategy driven by the businesses and evaluated through our audit side and through the audit committee under Lisa Flavin and the audit committee. We will go through this process most like I asked the audit committee yesterday to wait a little longer, probably it will be more like August this year. I want things to stabilize. But we are going to look at things like, how did our supply network do from a financial crisis standpoint. Do they have the money? Did we have to help them? Which ones we are going to keep up for this as we ramped up and down. So I think that from, as we look at right now, Josh, we are not going to be getting fundamental changes. As you know, our strategies we have multiple suppliers. But the big issue for the first time we are seeing not just one or two countries closing down, we have three countries closing down. And so, what we are going to have to do is evaluate this from an economic standpoint and a enterprise risk standpoint is looking at this model and say okay, do we have to have four. And so, those are things that we will do. Nothing right now I am more interested in stabilizing and then recovering. But we do know what happens with and I guarantee there will be changes as we leave this year on a calendar year basis and as we move into 2021 on a calendar year basis. So, I think it’s little too earlier at. We’ve been able to overcome it and in the mean time I do know we will make some changes as we go forward here in late 2020 and in early 2021.

Got it. I appreciate that. And then, just as I think about some of your kind of longer cycle customers or folks who don’t make decisions likely, I’d imagine that the speed of which doesn’t happened is maybe hard to kind of calibrate what they want to do, just show up one morning and kind of erase the zero from the budget and go forward. At what point do you think you get clarity from your customers, i.e. they’ve had enough time to scrub everything and get back to you. So I would imagine you are not quite in that moment yet where – what they want to do?

Josh, this one is a lot faster and the reason – this one is a lot faster. I mean, is it a 100% no, but it’s a lot higher percent than you think. And the reason for it goes back to what Frank covered is the liquidity in financial crisis. So, they really had to jump on this thing very early on in February and March. Now will there be some changes? The answer is yes. But I think that you missed – you don’t represent as well that if you don’t think that these guys have made some fundamental changes. We are living in it daily. At the OCE, we get together at 2 O’clock every day. The OCE downstairs is the big board room and we are spread out and both of us, both Lal and Bob were talking from a customers’ input. So these guys are moving much faster. So, maybe the last pieces will be finalized as they get finished out this reporting this quarter. But if I look at our customer base from a financial standpoint, they had to take action very, very quickly both from internally, cash flow generation and then also what we are looking at from a financial market standpoint. So this one is a little bit faster pace and being together allowed us to make some adjustments as much faster. But I would say these guys are further down that pipe than you think. And probably this quarter, we'll finalize it. Bob, anything you want to add on that?

No I think that’s right. And a lot of that is because nobody really knows what to expect. So in that event they freeze quickly. Whether it’s a small customer or a large customer, everybody is freezing very bad.

So, I think don’t underestimate this. It’s happened pretty quickly.

Got it. I appreciate the color. I’ll leave it there. Stay safe.

Okay. It’s good. Next.

Next question comes from Steve Tusa from JPMorgan. Please go ahead.

Thanks, Scott. That was easier name to pronounce. Steve Tusa.

Sorry. I was just out fixing myself in dinner. On slide..

You are facing yourself at dinner? Right, you mean, lunch or breakfast? What did you mean?

Well, I am just saying this is a pretty comprehensive conference call you are having here. It’s been a while …

Oh, you have to go to the bathroom? Oh okay. You are complaining. Oh, god, Tusa.

I was going to ask about the sequential downtick from June to July on Slide 34, but I will leave that. I’ll take that offline, ask Pete about that one. You have a modest sequential downtick there. Okay, so, anyway we really appreciate all the detail. Most companies are withdrawing guidance. Obviously, you guys have given a lot of detail here. Just a very simple question. How much of this cost save? I think you said $46 million of the cost saves have been booked kind of in the first half. How much do you have queued up for the second half? And then how much do you have visibility on for 2021?

We do have the numbers here. Let’s work this number and work it. We basically – what we showed the Board last week, Steve, is the second half, quarter-by-quarter and then also what we showed in them is the first half next year. So Lal, what do you have queued for savings to fall into this at this point in time?

What goes into the plan, just to kind of reset, we spent $112 million in the first half. We recognized savings from the restructuring and other activities in the first half of $46 million.

Okay.

Okay. Second half restructuring will be a $118 million. We combined savings in the year and – excuse me, in the second half of $186 million.

So, the incremental would be about a 140 something? And then what you are running out – what did you tell the Board going into the first half of next year? Clearly, has to make…

I do not changed off the plans from February. There will be runrate obviously impacts, because what we are doing incrementally this year.

The big savings allows them in the second half and then will go into the first quarter next year.

Okay. Thanks. So there will be some carryover into – so did you pull all of that into this year or you still have a pretty decent year-over-year kind of variance heading into 2021?

What you saw on the board, 10 and 21.

Right, I will share with you – well, I did not go into 2021 spend, but our spend in 2021 is expected to be $83 million.

$83 million.

I have not changed that number.

$83 million. So, we’d accelerate some stuff in and therefore on the $83 million you’ll have – they will still have some savings although that’s going to be dollar-to-dollar because they are going to be some longer term ones. But it will still have some carry over. So, we’ll probably have another $80 million in the whole year next year.

Just to give you a perspective, David, there was $55 million in 2019.

Yes.

There will be $230 million in 2020.

Yes.

And then another $83 million in 2021.

Yes. We’ll get dollar for dollar savings pretty quickly in that.

And for commercial residential, for the restructuring programs we are doing this year, about 60% of the savings benefit we will capture this year. So we got carry over about 40% and then of course we had to hold another set of actions in 2021, for 2021 and beyond that will lay into that as well.

Okay.

Steve, I think we’ll still have savings coming into the first half of next year. But once we will have to offset in the first half of the year will be things like the salary cut, because we will institute that. So those numbers will have to come back. That’s doing around $6.5 million for the second half. So $3.5 million per quarter. The salary planning numbers will hit us all for next year too, because that will roll back out. So, furloughing, there is a number of things again we are doing in the second half to be dramatically if you will that depending on how the sales curve returns. Certainly, some of this thing to return.

Yes, the key thing is prior bridge is much of the cost right now and then real cost savings will flow in as we finish this year. But I like the pace right now. I look at what’s going on with the decremental and inefficient plants and the savings are flowing through pretty nicely.

And why in the background mind do I feel, there was a $70 million number you threw out there earlier in the year and said you had embedded some of that. I mean these numbers seems substantially higher than that. I thought a little more is going to be pushed into kind of 2021 or do you just kind of accelerate those?

Yes, we had a 35 number for last year. I think they are bigger numbers now, Steve, because what’s happened is we’ve done a lot more short-term numbers and I think that the numbers that we shared with you in February are very similar to this. But they are obviously higher now because we have more savings and we are trying to accelerate. So, the costs are going up. But the savings are going up at the same time. We’ll have probably more carry over because we are doing more action right now. I mean, the issue is we are living in a dark period right now that we have to figure out how to drive our cost down. And that’s where we are at this point. So the numbers are bigger than I talked about earlier. But it’s always hard to tie back to other things I’ve said over the phone.

Right. And then just one quick one. Yes, I just wanted to kind of nail down, kind of the quarterly sequencing, because you gave the third quarter and the fourth quarter, and the fourth quarter obviously is a step-up sequentially on an EPS basis. Is that essentially kind of the mechanics of basically revenue stabilization and then all this kind of cost-cutting flowing through that you get. You don’t see that in the second quarter, because of how hard revenue is going down, but you really see it in kind of the fourth quarter. Just trying to reconcile this $0.60 moving to kind of the $0.80 to $0.90 or whatever it is in the fourth quarter?

100% correct, Steve. I think that, right now, we started, the team started working extremely hard about March 10th and we started taking, okay guys, we got something coming out of here. And so, what you are seeing right now is this wave is hitting us a lot harder as we saw around the world. So we’ve taken actions and we fundamentally believe will stabilize by the time we get into June. Business will still be down, but our cost actions are happening and while as the volume stabilizes we will – at a obviously lot more level our savings will start flowing through. That’s why we have that stepping up. The other thing I’ll make a comment to you – I think you all know is that, we’ve always had a variable performance share program going back since early 1970. It started that we showed on Chart 8 when we showed the first quarter we got hit very hard by $0.10 because the stock price is going up. On Chart 8 of – on the first quarter report in February, this quarter what’s happened is obviously the stock dropped dramatically a lot of wealth has been locked – locked off of our shareholder base including people like me and Frank and Bob and Lal. But the variable plan obviously is that lot lower cost. So therefore we got a benefit this quarter. We are assuming our stock price will stabilize and start coming back up. So we are factoring a little bit of recovery. So we will have a negative number based on right now in the second half of the year. We’ve always had a variable plant and we mark-to-market as you all know and we’ve pointed out over the times.

Got it. Your dog is probably not too happy about that one. Thank you, Dave. I appreciate it.

He's getting food right now. So don’t worry about it,

He likes the home quarantine.

He likes home quarantine. He got lot more place on the bed.

The next question comes from Robert McCarthy from Stephens. Please go ahead.

Good morning, Dave and team. Thank you for all the details.

Good morning, Rob. Where are you holding up? Where are you hiding? You are not..

Cambridge Massachusetts. Rejected three times, but they couldn’t keep me out. So…

You guys got still lot of activity going on right now. I don’t know if I am going to want you talking to me. You could be fast in stuff…

I think No, I think Elizabeth Warren is going to erect a guillotine and start taking out anybody over a $100,000. But I digress.

Well, thank, you don’t make a $100,000. You should be safe because you don’t make $100,000.

Yes, no. I know. I work for peanuts. You know that. So, in any event, expanding upon Mr. Tusa's excellent inquiry as always. The – I wanted to ask a little bit about the underlying cadence of at least the near-term. Obviously, you sit on the one of the committees that was – just announced the committee to reopen the economy. I think you are part of the industrial working group. So I don’t want to prejudge the recommendations you are making there and I better be careful because my monthly guy writes my checks. The gentleman who owns my firm is on that committee as well. I wanted to get a sense on all seriousness of how we think about the near-term short cycle in North America? How do you think about what is a return to at least economic normalcy? People getting back to work. Obviously, we’ve heard a lot about kind of a red, blue state divide here and I don’t want to get into a big political discussion despite my earlier rhetoric. But I do want to get a sense of how you are thinking about the industrial short cycle plays out in North America and perhaps Bob can amplify some of those comments, what’s embedded in your guidance as we roll it out going forward?

I mean, I think what we see right now is that, the business layers, a lot of political leaders are starting to realize the tax revenue shortfall. The cost of this of shutting down the economy is enormous and they are starting to see – they are starting to it here in this town. The medical professions are having to lay people off and cut costs because all the businesses disappeared revenue and other than this the crisis around Coronavirus. And the same thing in the business world. So I think that we are all fighting to save our lives as companies and institutions. A lot will not make it. So, from my perspective, the push forward is trying to get the economy open and get business open. We can do this safely. We’ve learned a lot from how this isolation and how we go about this and how we work together both from a company standpoint and the geopolitical standpoint. I watch politicians and business leaders, business leaders are business leaders. There has been a lot more collaboration than the press would ever, ever, ever talk about. And so, I see right now to be honest, Rob, I think you are going to see the next two quarters are going to be pretty tough for America. There is a lot of things have been stopped and slow down. There is a lot of concern even in our workforce of coming back to work and being exposed to this because people look at this as like it’s a killing zone if you leave your house. And so, I think that, so we are factoring in the U.S. right now is a very, very weak third and fourth quarter. We are not looking for much recovery here and I think that we are going to see the recovery happening internationally first. And I think that’s what we are starting to see already in the month of April. So, I think you are going to see a very gradual get back to work. I think that hopefully, we’ll start seeing some travel come back in. Thank, we're not in the travel industry. I don't know how they are going to recover here for a while. But this is going to be a very slow recovery and the money is being put out there. But the reality is so much wealth and so much you get on this wealth has been lost that there is not enough money in Washington to flood this world to bring it back. So we just got to get people back to the work making things and generating, and that’s going to take a long time and that’s how we are factored into. We are not factoring much of an economic impact in North America at all. What do you see, Bob?

Yes. I mean, the U.S. outlook for us in the second half is dramatically more difficult than any other region. The general industrial, the construction environment, as I mentioned, the cold chain environment, frankly we can see all of that being challenged for a while. Again, until we have the comfort, until the job losses ebb and we get the comfort of people getting back to work which is going to take a little time probably.

Yes. I mean, you look at over 330 million unemployed people in the United States. Let alone the people and climate, and let alone people that are fairly hold up in their homes right now that done want to come out. So, I think this is going to be quite dramatic. It’s going to take some time. It’s not going to be like the China. I think Europe and those guys will probably pull up sooner and it’s going to be tough one. Rob, anything else you want to add?

No.

Anything else Rob?

Yes, no, that’s very sobering. I guess, on top of that, I think your President of Safety in attendance so that’s right.

Yes.

And again, I don’t want to get into too much policy discussion, but one thing that’s been mettlesome for everyone, bureaucracy and policy aside has been some of the shortages around testing. I guess, the question I would have is you kind of flex across your facilities and you look at Mike’s chart, have you instituted your own kind of captive testing program for Emerson? Or what have you done to make sure that you can create the best information an environment for your workers to go back with confidence of safety?

The big issue, I mean, everything we can work around the right equipment, the right spacing, the right environment, the right cleanliness, having cleaning your hands you probably gotten the facility to be clean and everything else. Staggering the workforce, heat, temperature of this virus, a little bit different temperature. You could have a virus for several days before your temperature starts moving. The big issue that we’ve all talked to the President about and he knows this from a business standpoint is we are going to have to have, what I call quick testing at facilities. So we are going to go back assuming and I mean, I am hearing more and more work yesterday out of Washington. They are coming along with quick testing that will allow us to have a much faster impact. So if we have someone comes sick in the facility, we can test him or her, find out if they are really sick and if they are sick isolate them and quickly isolate people around them and then cleanse and then get back to work. So we are going to be in this game here I think for the rest of this year. The vaccine thing – we can’t wait for a vaccine. There won’t be any business left to wait for a vaccine. We’ve got to have the testing ability to find out who had it. Who has got it right now and I think that’s the big push both at in Washington in the medical communities, because they know from business we need that. We can do everything around that except that. And so the quicker that we get that and I know they know that, and that’s why I heard yesterday they are ramping up the news upon millions of the…

Next question comes from Joe Ritchie from Goldman Sachs. Please go ahead.

Thanks. Good morning, everyone. Thanks for fitting me in.

Hey, Joe.

So, Dave, just, I guess, my first question, when you think about that 14% number, the organic decline in the third quarter, can you just talk about April specifically? Is that been trending at that number already or below that number? I am just curious, like where you stand today, month-to-date or quarter-to-date on – versus that number?

Our order pattern right now is below negative 15. So we are tracking below that at this point in time on Bob’s business. Lal’s business is probably a little bit better than that. Lal has going to get some backlog. So we will look at that 14, we go plus and minus one-and-a-half, most likely to be around 14%, 15%. The key thing that we will come out with – we will come out with the orders in April, May. We will get that out for everybody, Joe. But right now, the trend line dropping quite rapidly. But we are starting to see some stabilization in our international markets including Europe. So the key is the big wildcard for us right now of substitute is the U.S. going back from my comments for Rob. This is still in a free fall and the question will be, how do we stabilize this from a business standpoint in the near-term. So I think that, I feel very comfortable even today as I talk to the audit committee yesterday morning, this 14%, 15% negative third quarter is well in tune. And I expect our orders when we come back and we’ll see that our orders are probably around that 14%, 15% in the month of April.

Got it. Okay. And maybe just kind of following on there and like, I’ll let go everybody else’s comments. Really appreciate all the rigor and level of detail that you guys wanted to give us is much information as you did today. But just following on that last point, Dave, so, when you think about that in the U.S. as we progress through the year, I mean, it’s really hard to know exactly how the shape of the recovery is going to be? So how much is China I guess influencing your thoughts around the U.S. and kind of that improvement in the growth pattern as we head into 4Q and into 2021?

I think that from my perspective, I said earlier Joe, that people like to make that earlier comparison – same comparison. It’s not to happen the same way. China is a controlled society. They work extremely hard. They shut it down hard. It seems somehow this sickness was only in a couple of regions. And they came in structurally. What we learned in China from our facilities, obviously, we are using from a safety standpoint in other facilities around the world. So I think the China structure is completely different. It will help us obviously. But we are looking at here and the U.S. is a completely different cycle and Europe a completely different cycle. It’s in a different world. So we are looking at U.S. is far more negative, far more muted and much more I would say a U shaped type of a structure it’s what we are going to stay down longer and then gradually come back out of it in the second half of 2021. We do not see a quick snap back at this point in time in the U.S. Now, if there somehow that everyone got back to work right away, we got the testing that we needed, maybe the fourth – the third calendar quarter, we could start seeing stuff. But I think that’s going to be more in the fourth quarter of this year. So I am very negative on the U.S. sales model and I’ll let Lal and Bob talk about this. But that’s how we see it right now. We are structuring a completely different cycle for each of the world areas based on historical norms and based on what we are seeing from our custom right now. So, Lal?

Yes, absolutely agree. And so I went around the horn with my world area leaders yesterday, it was clearly a North America challenge significantly more so than anywhere else.

So, why don’t give me couple colors? We got some colors in North America.

Yes. I’ll give you.

I’ll never give this much information again. You have to rip my tongue out there if we give this much information.

Yes, I’ve already given you the color around what’s happening with quotation rates. RFQ is down in that 25% rate in our – across our businesses. But just to give you perspective globally, globally, we were booking approximately $850 million a month. That was our runrate as we went through 2019 into the first quarter of 2020. In P7, we book somewhere around $680 million. But that’s kind of drop off is very significant. That 15-ish plus percent…

P7 for him is April. Let’s say work on period.

That’s April. And the biggest hit in that is the U.S. and Canada. The other world areas, Europe, Asia and Middle East will exceed their plan. But the Americas particularly will be challenged therein. So, Asia will be very closely, honestly to a normal – we call, a normal month in booking. Surprisingly, as they return and Europe doesn’t look as bad. But it’s really not America impact.

And Europe is getting a lot of medical bookings because that's..

I would call, lot of life science, David, and oil and gas honestly downstream we won a significant order with BP yesterday in Azerbaijan for our controls, a digital twin control system.

So, I think it’s an international market and so that’s what we see right now. I think the companies that are very international will have the benefits. Bob, you want to add anything. Anything, Bob you want to add?

No. Again I think, we don’t expect to see the U.S. go down as hard as China did, but we expect to see us stay down longer. So, that will take a little time. Again, it all depends. If people get back to work, if there is a vaccination all this kind of things, second half of next year could be a very exciting second half for us. If that plays our longer, then that could change. But we will come out of these before. We’ve had some pretty strong quarters and again hopefully that scenario will build up in this one as well.

We need the testing and the medical support to happen. And I think that’s what business people tell you. But I want to thank everybody for the calls and I appreciate everyone calling and listening. And I know it’s a lot of material. I apologize. But I thought it was important for everyone to have that input and look forward. I know Pete will be very busy in the phone to talk about the follow-ups here for the day. But I appreciate everyone. And I hope – hopefully we’ll be able to see everybody and unlike that the famous doctor that works for Donald Trump, I intend to shake hands and hug people at some point in time before I die. And so, I am a hand shaker and I don’t believe this hand shake will disappear. I mean, if we are all going to be that word, you might as well jump the water right now. But I look forward to seeing everybody and I look forward to seeing what unfolds here in the coming months. But rest assured Emerson is at business. Emerson is working and Emerson is working as extremely hard to make sure that we can take advantage and solve everything that needs to be solved here in the coming months. Thank you.

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